Home Builder TGLT Proceeds With Argentina's First IPO In 2 Yrs

Source: Dow Jones NewswiresBy: Matthew Cowley
03.09.2010

BUENOS AIRES (Dow Jones)--Despite the challenging political environment in Argentina, home builder TGLT is moving ahead with plans to list its shares on the Buenos Aires stock exchange within the next month, the first new Argentine share offering in nearly two years.

That makes TGLT an important test of investor sentiment toward the Argentine stock market, which has struggled since a massive financial crisis in 2001 and 2002, and continues to be beset by political uncertainty. The prospects had looked rosy at the beginning of this year, as the Merval index peaked at an all-time high on Jan. 5.

The very next day, however, a crisis erupted as the government and opposition parties locked horns over the use of some of the central bank's $48 billion in foreign-exchange reserves, and local financial markets remain on edge. If that is somehow settled, and the government can complete an important swap of defaulted debts, analysts believe the stock market could quickly bounce back.

Nevertheless, part of the trick to attracting long-term investors is being able to distinguish the political confrontations, and the accompanying newspaper headlines, from the real-estate business, which continues to perform well, said TGLT's founder and president, Federico Weil, in an interview with Dow Jones Newswires.

"Country risk is an average of many things and you have to be careful with averages," said Weil. The broad picture of a country, often portrayed through financial indexes measuring country risk, can obscure profitable endeavors, he said.

TGLT plans to raise between $50 million and $70 million from an initial public offering of shares, equivalent to about 30% of the company's total capital, Weil said. About half the shares are expected to be sold in Argentina and the rest to foreign investors, through global depositary receipts, he said.

TGLT plans to use the money to develop new projects and for acquisitions, as it seeks to emulate the considerable success that home builders have had in other Latin American countries such as Brazil, Mexico and Chile, meeting the massive pent-up demand for housing.

Those three countries have seen a boom in housing construction in recent years, spurred on by government policies designed to encourage home ownership and improve access to mortgages. According to Dealogic, companies in the three markets have raised about $2.7 billion in equity capital alone since 2003.

Few of the conditions that exist in those three countries are visible in Argentina at the moment, although there is a considerable housing shortfall. TGLT says it wants to be prepared if - or when - those changes come, and the market were to take off. In the meantime, said Weil, there's plenty of potential in the high-end market, which is the current focus.

Wealthy Argentines often eschew the banking system and financial investments, and instead buy property. Amid regular economic crises, houses are sought out to preserve the value of wealth, rather than to make money, said Jose Rozados, of Reporteinmobiliario.com, a consulting and advisory firm for the real estate business.

There are other unique characteristics to the local market. Mortgages are often expensive, at about 18% per year for 20-year loans, and hard to find, so more than 90% of high-end homes in the capital, Buenos Aires, are paid for in cash. Suppliers sometimes barter their services, providing goods and materials in exchange for apartments.

In this business model, securing prime locations and a good reputation is essential. TGLT has worked hard at both.

The company's first project in 2004 was in Puerto Madero, a piece of redeveloped port land across from heart of Buenos Aires's city center that became a real-estate showpiece in the last 10 to 15 years. That made it "easy to explain" to investors in the U.S. and elsewhere, Weil said.

The company has built on the success of Forum Puerto Madero with the development of some eye-catching pieces of real-estate within Argentina and, most recently, in Montevideo, the capital of neighboring Uruguay.

A disused brewery in the city of Rosario is being recycled into residential, office and retail units in the heart of the city, while an abandoned shipyard in Tigre, a summer getaway town increasingly considered a suburb of the capital, is being turned into a plush marina.

At the height of the global financial crisis in late 2008, TGLT paid $32 million for a plot of land in central Buenos Aires that Weil said has been sought after for years by developers. It recently moved abroad with its Project Miura in Montevideo, Uruguay, covering 13,000 square meters overlooking the River Plate, and close to the country's World Trade Center.

Altogether, TGLT and its partners are investing about $380 million to develop the existing projects, of which about $70 million was put up in cash. The remainder comes from other sources of financing, such as pre-sales. Those projects are already paid for, so the income from the share offering will be for brand new developments.